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U. S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
WASHINGTON, D. C. 20410-8000
JUN 23 1987
OFFICE OF THE ASSISTANT SECRETARY FOR
HOUSING-FEDERAL HOUSING COMMISSIONER
Mortgagee Letter 87-20
TO: ALL APPROVED MORTGAGEES
SUBJECT: Claims without Conveyance of Title (CWCOT); Bidding
Requirements for Foreclosure Sales
A final rule published in the Federal Register on January
13, 1987, revises the procedures for the payment of claims under
the Single Family FHA Mortgage Insurance program. The purpose
underlying this statutory amendment is to provide a feasible
system whereby foreclosing mortgagees may receive the benefits of
mortgage insurance without conveying properties to HUD, thus
reducing the number of single family properties which come into
the HUD inventory.
This rule implements Section 426 of the Housing and Urban-
Rural Recovery Act of 1983, which amended Section 204(a) of the
National Housing Act. These amendments to the National Housing
Act authorize payment of claims for insurance benefits without
conveying title of the foreclosed properties to HUD.
The rule provides reasonable encouragement to third parties
to acquire properties. The Department requests and encourages
mortgagees to do what they can to help HUD make this program
successful. Any publicity mortgagees can give the program will
be appreciated.
The purpose of this Mortgagee Letter is to provide
mortgagees with the procedures for bidding and payment of claims
under this rule. These procedures are effective for
foreclosures initiated on or after August 15, 1987. However,
mortgagees may follow these procedures at their option for
foreclosures already in process.
NOTE: This regulation also provides the mechanics,
e.g., bidding procedures, reimbursement which would
be used in the event that HUD and mortgagees
determine that it would be appropriate to pursue
deficiency judgments. Field offices can make use of
these procedures in connection with pursuing such
judgments even though the final regulations on
deficiency judgments have not been issued.
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I. Applicable Mortgages
A. Criteria for Applicable Mortgages
The regulation (24 CFR 203.368 et. seq.,) applies to all
Single Family FHA-insured mortgages for which a conditional
commitment to insure was issued, or under the Direct
Endorsement program where the property appraisal report was
signed by the mortgagee's underwriter, on or after November
30, 1983. However, the mortgagee may elect to file a claim
under this new provision for mortgages not meeting these
criteria. Election is made by the mortgagee by giving
notice of the foreclosure sale to the local HUD Office on
Form HUD-91022, Mortgagee Notice of Foreclosure Sale. (See
Attachment 1.)
B. Phase-in Implementation
It is unclear how often these procedures will prove
effective in disposing of foreclosed properties without
conveyance to HUD. Recognizing that there is a workload
involved for both mortgagees and HUD, the Department has
decided to implement the program in two phases. Initially
mortgagees must use these procedures only with respect to
mortgages meeting the criteria described in paragraph I. A.,
and where the residence is vacant or non-owner occupied.
Mortgagees shall identify vacant homes and non-occupant
owner(s) through sources such as, loan origination files,
property inspections and collector reports. Note that
mortgagors who originally purchased as owner occupants and
have subsequently become non-occupant owners are included.
The rights of mortgagees which do not follow CWCOT
procedures because they mistakenly fail to identify a non-
occupant owner shall not be adversely affected. However,
such mortgagees must be prepared to provide detailed
comments regarding the efforts they made to identify non-
occupant owner(s).
II. Action by Mortgagee
A. After a six- to nine-month test period the Department will
analyze the results and decide if mortgagees will be
required to follow these procedures on all mortgages
meeting the criteria in paragraph I. A. A subsequent
mortgagee letter will announce our intentions at that
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time. In the interim, at the time of instituting proceedings
to foreclose on a single family FHA-insured mortgage meeting
the applicable criteria, the mortgagee must identify whether
the home is vacant or if the mortgagor is a non-occupant
owner. Presuming that these conditions exist, the lender
must take the following steps:
1. estimate the foreclosure sale date;
2. prepare the Form HUD-91022, Mortgagee Notice of
Foreclosure Sale, Part A (see Attachment 1), 45 days
prior to the estimated foreclosure sale date;
3. handcarry or mail the HUD-91022 to the local HUD office
Single Family (SF) Loan Management Branch 45 days prior
to the estimated foreclosure sale date and label the
envelope "CWCOT/Foreclosure Sale"; and
4. confirm the actual date of the foreclosure sale by
furnishing a copy of the legal Notice of Sale or other
notification of the actual foreclosure sale date to the
local HUD office SF Loan Management Branch on or before
the date of publication, posting, or other standard legal
notice. Insert at the top of this notice:
a. the Mortgagee Loan Number,
b. FHA Case Number, and
c. the Mortgagor's Name.
B. When completing the HUD-91022, the mortgagee must:
1. call the Valuation Branch, Assignment Clerk, in the local
HUD office which has jurisdiction over the property to
obtain the name of a fee appraiser or HUD staff person,
if available, to perform the appraisal.
2. insert in Part A, Block 11 of the Form HUD-91022:
a. the name of the appraiser which was assigned from the
panel of HUD fee appraisers or,
b. "HUD Staff," if HUD staff is performing the
appraisal.
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NOTE: If your State or local law or practice requires that
a pre-foreclosure appraisal must be made by an
independent appraiser such as one employed by the
Sheriff's Office, the mortgagee shall submit that
appraisal, if it is obtainable, with the HUD-91022 in
lieu of requesting the HUD fee appraiser.
C. Because mortgagees are "estimating" the foreclosure sale date
45 days prior to the foreclosure sale, when the mortgagee
discovers, through receipt of the actual Notice of Sale, or
other standard legal notice of the foreclosure sale that they
have not sent the HUD-91022, the mortgagee must immediately
send the HUD-91022 and the Notice of Sale to the HUD office
SF Loan Management Branch.
EXAMPLE: - The mortgagee estimated 45 days prior to a
foreclosure sale date of July 15 and intends to
submit the HUD-91022 on or a few days before June
1.
- On May 20, the mortgagee receives the actual
Notice of Sale or other notification of the
foreclosure sale date set for June 21.
- The mortgagee must submit immediately the HUD-
91O22 and the Notice of Sale or other
notification on or before the date of the
publication, posting, etc. of the June 21
foreclosure sale date.
NOTE: Processing of the Form HUD-91022 and receipt of the
Notice of Sale shall be monitored by local HUD offices.
D. On the same day that the mortgagee submits the HUD-91022 to
HUD, the mortgagee must:
1. forward a completed Application for Property Appraisal
and Commitment, Form HUD-92800 package including a
Uniform Residential Appraisal Report (URAR) to the
appraiser or to the HUD Valuation Branch if HUD staff
person is to perform the appraisal (URAR not required for
HUD staff), and
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2. stamp the top of the HUD-92800, "PROPERTY IN
FORECLOSURE". (This will serve as a "flag" to the
appraiser as well as the local HUD office as to the
disposition of the appraisal report.)
The assigned fee appraiser will follow the outstanding
instructions which require that within five (5) working days
of receipt of the request that the appraiser must send:
1. the completed report to the local HUD office, Valuation
Branch, and,
2. a copy of the report to the mortgagee.
If a HUD staff person is used, the mortgagee will send the
Form 92800 to the local HUD office Valuation Branch. A copy
of the completed appraisal will be provided to the mortgagee.
E. If the mortgagor reinstates the mortgage after foreclosure
has been instituted, the mortgagee must:
1. advise the local HUD office SF Loan Management Branch by
telephone and follow up with a letter marked to the
attention of the SF Loan Management Branch/CWCOT and
include the FHA case number, verifying such action.
2. contact the fee appraiser to cancel the appraisal, or if
HUD staff was assigned, so indicate to the SF Loan
Management Branch.
3. pass on the cost for the appraisal to the mortgagor as
part of the foreclosure expenses as set out in CFR
203.552(a)(9).
F. If the mortgagee has any problem in arranging for the
appraisal, the mortgagee must call the local HUD office,
Valuation Branch advising of the problem. If necessary, HUD
may assign another appraiser.
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III. HUD Office Action
Upon receipt of the HUD-91022 from the mortgagee, the SF Loan
Management Branch will review the form, contact the mortgagee
regarding any questions about the form, log and hold the form
for receipt of the appraisal report from the Valuation Branch.
When the appraisal report on the property has been received
from the Valuation Branch, the SF Loan Management Branch will
calculate the Commissioner's Adjusted Fair Market Value (CAFMV)
of the property and complete Part B of the HUD-91022. The CAFMV
is discussed below in item V.
The SF Loan Management Branch will provide the CAFMV to the
mortgagee no later than five (5) working days prior to the
foreclosure sale date. HUD will monitor the date that the
CAFMV is mailed to the mortgagee.
IV. Advertising
Advertising will not be required by mortgagees at this time but
will be addressed in a later mortgagee letter.
V. Commissioner's Adjusted Fair Market Value (CAFMV)
The Commissioner's Adjusted Fair Market Value (CAFMV) is the
estimate of the fair market value of the mortgaged property,
less adjustments, which may include, without limitation, HUD's
estimate of holding costs and resale costs that would be
incurred if title to the mortgaged property were conveyed to
HUD. When the CAFMV is provided by HUD to the mortgagee, it
must be mailed in time to be received by the mortgagee at least
five working days prior to the sale.
If the written notice of the CAFMV is not received at least
five working days prior to the foreclosure sale date, the
claims without conveyance procedure has no further application.
The provisions of CFR 203.355-367 are applicable instead.
However, a mortgagee which receives the CAFMV prior to the
foreclosure sale may waive late receipt and elect to follow the
claims without conveyance of title provisions.
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The sale shall not be postponed because of non-receipt of the
CAFMV from HUD. The mortgagee simply bids as it chooses. It
is expected that the mortgagee will generally bid enough to
protect its investment in the property in the event it is
outbid by a third party bidder.
VI. Foreclosure Sale Bidding
A. Where the CAFMV is provided at least five working days
prior to the foreclosure sale, the mortgagee must bid that
amount if it wishes to retain the option to retain or convey
title to HUD and file a claim for the insurance benefits.
If the mortgagee bids an amount in excess of the CAFMV, it
is deemed to have made an election not to file a mortgage
insurance claim with conveyance of title to the Department.
NOTE: In some jurisdictions that have extraordinarily high
transfer taxes, some mortgagees customarily commence
the bidding at nominal amounts. Where mortgagees
intend to convey title of the property to HUD,
mortgagees may continue this practice. However, in
the face of competing bids, mortgagees must, if
necessary, bid up to the CAFMV or risk not being able
to file a claim. Mortgagees are cautioned that if
the property is not to be conveyed to HUD so that a
Claims Without Conveyance of Title is filed, i.e.,
title is retained by the mortgagee, purchased by a
third party bidder or redeemed, the mortgagee must
bid as a minimum the CAFMV.
B. There may be special circumstances, such as when the
mortgagee may be required under State law to bid in excess
of the CAFMV, which will justify a mortgagee's bid in excess
of the CAFMV. Under such circumstances, the mortgagee
should not be deprived of its ability to convey title to the
property to HUD.
In such case, the mortgagee must call the HUD SF Loan
Management Branch, immediately after but no later than five
days after the foreclosure sale, to obtain approval to
convey title to the property to HUD. The SF Loan
Management Branch shall verify such approval in writing to
the mortgagee. The Department will waive the provisions
requiring the bidding of the CAFMV and allow
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the mortgagee to convey title to the property to HUD and
file a claim for the insurance benefits. The mortgagee
must indicate that it received the field office approval
and the date of the approval in the "Mortgagee's Comments
Section" on the Claim for Insurance Benefits, Form HUD-
27011. A copy of the field office approval letter must be
maintained in the mortgagee's Audit File.
C. If the minimum bid required under State law is less than
the CAFMV, the mortgagee will bid the CAFMV.
D. If the foreclosure sale is postponed, the appraisal and the
CAFMV are effective for six months. During this period, the
mortgagee must notify immediately the HUD SF Loan Management
Branch if its inspection of a vacant property indicates any
damage to the property. The SF Loan Management Branch will
advise the mortgagee accordingly. (Also, refer to page 11,
item IX below regarding damaged properties.)
If sales are postponed and rescheduled within the six
months effective time period of the CAFMV, mortgagees need
not notify HUD of the new sale date. However, if the newly
scheduled foreclosure sale date is set for more than six
months from the date of the CAFMV, the mortgagee must
contact HUD to obtain an appraiser to arrange to get an
updated appraisal and CAFMV. The mortgagee must follow the
same time requirements used to get the first appraisal and
add to the top of the HUD-92800 that it is an "UPDATED
APPRAISAL, PROPERTY IN FORECLOSURE."
VII. Acquisition of Title at Foreclosure Sale
At the foreclosure sale, either the mortgagee or a third party
will be the successful bidder. Also, the mortgagor or a third
party may redeem the property.
A. If the mortgagee is the successful bidder:
1. Where the mortgagee is the successful bidder for an
amount equal to the CAFMV, the mortgagee may elect to
either retain title to the property, or convey title of
the property to HUD.
a. When the mortgagee retains title, it must file its
claim within 30 days after acquiring good,
marketable title to the mortgaged property. The
mortgagee may file a claim for insurance benefits as
computed in CFR 203.401(b).
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b. When the mortgagee conveys title of the property to
HUD, the mortgagee must transfer the property to HUD
within 30 days after acquiring good marketable title
to and possession of the mortgaged property, or
within such further time as may be approved by the
local field office. The mortgagee may file a claim
for insurance benefits as computed in CFR
203.401(a).
2. Where the mortgagee is the successful bidder for an
amount in excess of the CAFMV, the mortgagee is deemed
to have elected to retain title to the property, and
cannot convey title of the property to HUD. The
mortgagee is limited to filing a claim for the insurance
benefits computed as provided in CFR 203.401(b), which
will be calculated on the basis of the bid amount.
However, if the local HUD office approved the
mortgagee's justification for having bid an amount in
excess of the CAFMV as discussed on page 7, item VI B.
above, HUD would waive this provision and allow the
mortgagee to convey title to HUD if it so chooses. The
mortgagee would file a claim for the insurance benefits
computed as provided in CFR 203.401(a).
Whether the mortgagee retains the property or receives
approval to convey the property as set forth in item VI
B. above, the mortgagee has 30 days after acquisition
of good marketable title to submit its claim for
insurance benefits to HUD (if any) on Form HUD-27011,
Single Family Application for Insurance Benefits. If
the mortgagee receives approval to convey the property
as set forth in item VI B. above, "possession of" the
property, as well as good marketable title, shall apply.
3. Where the mortgagee is the successful bidder for an
amount which is less than the CAFMV, the mortgagee can
only obtain the insurance benefits by conveying title to
the property to HUD. If the mortgagee retains title to
the property, the mortgagee would not be able to file a
claim.
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If the mortgagee elects to convey title to HUD, the
mortgagee must transfer the property to HUD within 30
days after acquiring good marketable title to and
possession of the mortgaged property. The mortgagee
may file its claim for insurance benefits in accordance
with CFR 203.401(a),
4. If the mortgagee retains title to the property, HUD will
not pay for any of the following costs incurred by the
mortgagee:
- Costs to maintain the property after the forclosure
- sale,
- Eviction costs, or
- Costs to sell the property.
B. If a third party is the successful bidder:
1. Where a third party is the successful bidder at the
foreclosure sale for an amount equal to or greater than
the CAFMV, the mortgagee must submit its claim for
insurance benefits (if any) on Form HUD-27011, Single
Family Application for Insurance Benefits, within 30
days after the date the third party acquires good
marketable title to the property. When the claim is
calculated, the proceeds of the sale shall be deducted
from the principal balance of the mortgage which was
unpaid on the date of the foreclosure proceedings.
2. Where a third party is the successful bidder at the
foreclosure sale for an amount which is less than the
CAFMV, the mortgagee will not be able to file a claim.
C. If the mortgagor or a third party redeems the property:
Where the mortgagor exercises the right of redemption and
redeems the property or a third party redeems the property
pursuant to the mortgagee or a third party bidding and
acquiring title to the mortgaged property for an amount not
less than the CAFMV, the mortgagee must submit its claim (if
any) within 30 days after the property is redeemed. The
redemption amount will be deducted from the principal
balance of the mortgage when the claim is calculated.
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D. If a third party sale falls through, State laws govern
disposition, i.e., readvertising the property,
reverting next highest bidder, etc. Since the deed
would not have been filed for record, acquisition of
good marketable title would not have been obtained.
The mortgagee would still have 30 days from the date
where such title is obtained to file the claim. (Also,
refer to page 8, item VI D. regarding postponement of a
foreclosure sale.)
E. Where there are third party purchases, HUD will not
reimburse the mortgagee for eviction costs. Also, HUD
will not reimburse the mortgagee for expenses incurred
to preserve and protect the property after the
foreclosure sale.
VIII. Extension Requests
If the mortgagee is unable to meet a time frame where an
extension is allowed, the extension must be requested in
writing, prior to the deadline, from the local HUD office
having jurisdiction over the property, Attention: Single
Family Loan Management. Extension requests will not be
granted arbitrarily by HUD. The mortgagee must show
sufficient justification for an extension request.
IX. Damaged Properties
If the mortgaged property has been damaged by fire, flood,
earthquake, or tornado or for mortgages insured on or after
January 1, 1977, the property has suffered damage due to
mortgagee neglect, (i.e. vandalism) as set forth in 24 CFR
203.378, title must be conveyed to HUD. The mortgagee must
follow the requirements for damaged properties at 203.379
and the claim for insurance benefits instructions.
X. Deed in Lieu of Foreclosure
Where title is acquired by the mortgagee through a deed-
in-lieu of foreclosure, the property must be conveyed and
the claim will be paid in accordance with normal conveyance
procedures. An appraisal shall neither be requested nor
reimbursed.
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In cases where a deed-in-lieu of foreclosure is accepted
after foreclosure has been instituted, the mortgagee should
cancel the appraisal. If the appraisal has already been
done, the mortgagee may claim the cost when filing the
claim.
XI. Reporting Requirements The information collection
requirements in this Mortgagee Letter have been approved by
the Office of Management and Budget (OMB) and assigned OMB
control numbers: 2502-0347 (HUD-91022), 2535-0093 (HUD-
27011) and 2535-0055 (HUD-2344).
XII. Claim Instructions for Insurance Benefits for Claims
Without Conveyance of Title.
A complete set of instructions for submission of a claim
without conveyance of title are attached along with
applicable changes for conveyance claims.
XIII. Form supplies
Form HUD-91O22 has been printed and is being distributed to
local HUD offices. The form may be reproduced or obtained
from the local HUD office in your jurisdiction.
If you have any questions regarding this letter, contact
your local HUD office.
Sincerely yours,
Thomas T. Demery
Assistant Secretary
Attachments
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